USD/CNY outlook: indicating gradual downside pressure as tariff changes reshape currency dynamics
MUFG Bank projects a gradual weakening of the USD/CNY pair through 2025 as Sino‑US tariff policies adjust. The analysis blends historic data, policy shifts, and flow metrics to gauge currency pressure. Expected depreciation is modest, within established trading bands, amounting to 3‑5% over 12‑18 months. Reduced tariffs on Chinese exports typically boost yuan demand via trade‑balance improvements, stronger investment sentiment, and signals of deeper economic coordination. MUFG’s research finds a 10% tariff cut correlates with a 1.2‑1.8% yuan appreciation in subsequent quarters. This relationship has held statistically since 2018 across multiple negotiation cycles. The People’s Bank of China maintains a managed‑floating regime with “two‑way flexibility,” supporting yuan while allowing market forces. Meanwhile, the Federal Reserve’s gradual rate normalization presses the dollar higher. Combined with selective Chinese capital‑control liberalisation, these dynamics create mixed but net‑positive pressure for a stronger yuan. Traders must navigate uneven liquidity, especially favoring Asian sessions for yuan execution. Corporate hedging activity and potential shocks—such as accelerated Fed tightening, Chinese property stress, or heightened geopolitical tension—could alter the projected path. Ongoing monitoring of tariff talks, policy moves, and capital flows remains essential for accurate positioning.
